Budgets, they are a changin’ (2)

The Guidance Note on Precedent H identifies, inter alia, where within a budget various items of work, in so far as they are required by the circumstances of the case, should be included. Highlighting the changes from the previous guidance:

  • Amendments to statements of case now fall into the Issue/statement of case phase (and should no longer be included in the contingent costs section of the budget)
  • Any further CMC that is built into the proposed directions order should now be included in the CMC phase
  • Counsel’s brief fee now falls within the Trial Preparation phase (and not, as formerly, in the Trial phase). Counsel’s trial refreshers remain in the Trial phase, as before
  • Mediation is now included in the ADR/Settlement phase (mediation should no longer be included as a contingency). Likewise, approval of settlement (if required).

The Guidance Note also sets out the recent change to Paragraph 7.4 of Practice Direction 3E (considered in September) which moves the line between incurred and budgeted costs, formerly drawn on the date of the budget, now drawn up to and including the date of the first costs management hearing/order. Budgeted costs are now all costs to be incurred after the date of the first costs management hearing/order.

The Guidance Note also adds a short statement of principle, not included in the previous iteration, that estimated costs may have to be justified at the CCMC along with the grade of fee earner doing the work.

Costs and allocation: where damages fell below the threshold

Where a claim is for a sum less than £10,000 it will be allocated to the small claims track and only limited costs will be recoverable, ordinarily restricted to court fees and expenses.

In Khan v Aviva Insurance Limited (unreported) the Defendant’s insured reversed her car into the Claimant’s vehicle. The Claimant brought a claim for personal injury and credit hire charges. The claim was allocated to the fast track.

The personal injury claim was not made out and was dismissed accordingly, but the credit hire claim was successful and the Claimant was awarded £6,265.80. This set up the following argument on costs:

a. The Claimant said that fixed costs pursuant to CPR 45.29B should apply (c. £5,000 plus allowable disbursements);
b. The Defendant argued that because the claim was only allocated to the fast track because of the personal injury claim (which had failed), and that otherwise it would have been allocated to the small claims track, the order should be:
i. That the Claimant pay the Defendant’s cost of the personal injury claim and that the Claimant should recover only small claims costs in respect of the credit hire claim; or
ii. That alternatively the Defendant pay the Claimant’s cost limited to small claims costs.

On the question of allocation, the Judge reaffirmed that individual parts of a claim cannot be allocated to different tracks – so the whole claim was, and remained, allocated to the fast track. The Judge considered that the claim could have subsequently been re-allocated but noted that no such application had been made. The position was clear: “it was the personal injury element of the claim which was the reason why the claim was allocated to the fast track. If there had not been the personal injury claim, the claim for the other losses would almost certainly have been allocated to the small claims track…”.

The Judge considered that the general rule, over-arching the Court’s general discretion as to costs, is that the unsuccessful party will be ordered to pay the cost of the successful party (CPR 44.2(2) – usually expressed as ‘costs follow the event’). The Claimant was the successful party on the basis that “it is the Defendant who is writing the cheque”. On this basis, the normal rule, in this case, would be that fixed costs pursuant to CPR 45.29B will apply unless the court should make “a different order”.

The Court considered the interplay between fixed costs and the power to make “a different order”, finding that the object of fixed costs is to provide certainty such that exercising a power to make “a different order” should be exercised with caution.

The Judge found that “where a case has in fact been allocated to a particular track and has succeeded, to deprive the successful party of the costs normally awarded simply because the level of damages in fact fell ultimately below the threshold of the track is, again, not an automatic reason to depart from the normal rule”.

The Claimant was awarded fixed costs pursuant to CPR 45.29B.

Conditional Costs Order, guidance on the calculation of interim payments on account of costs

In Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd (Costs) [2019] EWHC 2338 (Comm) the Claimant applied to strike out the Defendant’s defence for failure to comply with directions. The application resulted in a peremptory “unless” order, compelling the defendant to comply with directions, failing which judgment (in excess of $7m) would be entered.

The Claimant sought a payment on account of its costs pursuant to CPR 44.2(8): “Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so”.

Noting that the Claimant’s costs, of £410,004, excluding the costs of the strike-out application, were within the approved budget, the judge set out the approach to ascertaining the level of a payment on account. Citing McInnes v Gross [2017] EWHC 127 (QB):

  • The approved costs budget is the starting point for the calculation
  • CPR 3.18 provides that “the court will… not depart from such approved or agreed budget unless satisfied that there is good reason to do so”
  • In McInnes the court reduced the approved budget by 10% “which I regard as the maximum deduction that is appropriate in a case where there is an approved costs budget”.

Using this approach, the Judge calculated 90% of £410,004 (£369,003). Indemnity costs had not been ordered (as “the Defendant can[not] be said to have behaved so unreasonably as to justify [such an] order”). Therefore, “a slightly lower figure should be adopted” and the Judge ordered that, if the unless order is not complied with, an interim payment of £350,000 should be paid within 28 days of judgment being entered.

The Claimant was awarded, in addition, its full costs of the application.

Summary assessment: hourly rates

A High Court judge has urged a review of the guideline hourly rates, which were fixed in 2010, saying the current levels are “not helpful in determining reasonable rates in 2019”.

In Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2504 (TCC) Mrs Justice O’Farrell assessed costs of the Defendant’s successful application for a stay pending compliance with an agreed dispute resolution procedure.

The incidence, basis and assessment of costs was determined on paper, each side exchanging short written submissions. There was no dispute as to the applicable principles:

• The Court has discretion as to whether costs are payable by one party to another, and as to their amount: CPR 44.2(1);
• The general rule is that the unsuccessful party will pay the costs of the successful party: CPR 44.2(2); and
• The Court will have regard to all the circumstances, including conduct of the parties and any offers: CPR 44.2(4) & (5).

The parties agreed that the Claimant should pay the Defendant’s costs, summarily assessed on the standard basis. As such:
i. the Court will allow costs which have been reasonably incurred and are reasonable in amount, resolving any doubt in favour of the paying party: CPR 44.3(1) & (2); and
ii. the Court will only allow costs which are proportionate to the matters in issue: CPR 44.3(2).

No issue of proportionality arose.

On the issue of hourly rates, the Judge said “The [SCCO] guideline rates are significantly lower than the current hourly rates in many London City solicitors, as used by both parties in this case. Further, updated guidelines would be very welcome”.

The Judge found that “the technical nature of the dispute justifies the engagement of solicitors with the appropriate skill and expertise to ensure proper and efficient conduct of the litigation” and that “Solicitors providing such skill and expertise are entitled to charge the market hourly rate for their area of practice”.

The Defendant’s costs (of the application for a stay) were £52,152. The Judge assessed costs, on the standard basis, at £46,000. In doing so the Judge noted that Grade A and Grade D time was limited and reasonable (without indicating the respective hourly rates). In reducing Grade B and Grade C time, the Judge indicated that she was allowing hourly rates of £655 and £455 respectively.

Budgets, they are a changin’

The 109th Update to the Civil Procedure Rules implements an amendment, effective from 1 October 2019, to Paragraph 7.4 of Practice Direction 3E.

By substituting the words “before the date of any” with “up to and including the date of the”, paragraph 7.4, will now read:

“As part of the costs management process the court may not approve costs incurred up to and including the date of the costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs”.

The effect of the change is to draw a line between costs up to and including the CCMC (all such costs being incurred costs) and costs to be incurred after that date (budgeted costs). Formerly this line was drawn in a different place: incurred costs (subject to detailed assessment) were all costs up to the date of the budget; budgeted costs ran from that date.

The former position was, in a sense, simpler as incurred time ended on the date on which the budget was drawn. There was no need to estimate costs between the budget and the CCMC.

In practice what this change is likely to mean is that:

i. budgets, prepared significantly ahead of a CCMC (for example, when the budget is filed with the directions questionnaire), will need to be updated before the CCMC; and/or
ii. budgets in higher value cases, to be filed and exchanged 21 days before the CCMC, should be produced, where practicable, as close to the hearing as possible; and
iii. it will now be necessary to estimate (and treat as incurred) the work between the budget and the CCMC.

In respect of (ii) above, there are obvious (and potentially very serious) risks with leaving this too late and therefore early discussions between solicitors and costs lawyers will be crucial.

The amount by which a Claimant beat its own Part 36 offer is irrelevant

In JLE (A Child by her Mother and Litigation Friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB) the successful claimant served a bill of costs for £615,751 and then made a Part 36 offer to accept £425,000. The offer was not accepted. On assessment the Claimant beat her offer by £7,000.
The Rules provide that where a Claimant beats her Part 36 Offer the court must, unless it considers it unjust to do so, order that the Claimant is entitled to (a) interest; (b) costs on the indemnity basis from the expiry of the offer; (c) interest on those costs and (d) an additional amount, not exceeding £75,000, calculated by applying 10% to the sum awarded by the Court (CPR Part 36.17(4)(a)-(d)).

At first instance the Master awarded the sums provided for in CPR 36.17(4)(a)-(c) but held that it would be unjust to award the additional amount, that is the uplift on damages or, in this case, costs, under CPR 36.17(4)(d) which, the Master said, would result in a disproportionate “bonus” of c. £40,000.
That decision was appealed.
It was held that, when considering injustice, the court may find it unjust to award some of CPR 36.17(4)(a) – (d), but not all. However, it is not open to judges to take into account, in the exercise of their discretion, the amount by which a Part 36 Offer had been beaten. Taking into account the significance of the 10% uplift (c. £40,000) relative to the margin by which the offer was beaten (£7,000) was an error of law. The additional award of 10% should not be characterised as a “bonus”. It is not meant to be compensatory. It is supposed to include a penal element when a Claimant had made an offer which it matched or bettered.
There is no power to award a lower percentage than the 10% prescribed by CPR 36.17(4)(d). The language of the rule makes it clear that the uplift is all (i.e. 10%) or nothing.

Another case in which the Court rejects comparison between each sides’ costs

In Monex Europe Limited v Pothecary and Kaufman [2019] EWHC 2204 (QB), following the refusal of an application for an injunction against the Defendants, costs against the Claimant fell to be summarily assessed. The Defendants’ costs, of c. £85k, were nearly twice that of the Claimant, of c. £44k. The Claimant, claiming to have borne the burden of the application, said that, as compared with their own, the Defendants’ costs were unreasonably high.

The Judge rejected the comparison approach: “it is not appropriate for the Court simply to compare the two sets of costs and say that the Defendants’ costs were disproportionate because they were greater, or that elements of them were greater, than that of the Claimant. It is necessary to look at the specific items for which costs are claimed”.

The Claimant was ordered to pay £74k (87% of the claimed costs) to the Defendants.

Lawyers avoid non-party costs order

In Willers & Joyce & Ors [2019] EWHC 2183 (Ch) the Court dismissed an application to fix the Lawyers with a non-party costs liability.

The case followed an initial unsuccessful claim (“the Langstone action”) brought by Mr Gubay (“G”) against Mr Willers (“W”). W was awarded costs which were settled a c. £1.5m leaving a shortfall of c. £2m. Of the shortfall c. £1m was attributable to the costs of W’s solicitor (“S”) in the Langstone action and c. £500k each to Leading and Junior Counsel (“L” and “J”).

W brought proceedings against G’s estate (G having died) alleging G had maliciously prosecuted the Langstone action against him. One of the heads of damages was the c. £2m shortfall in costs.

When W’s malicious prosecution claim was lost, G’s executors sought to add S, L and J (“the Lawyers”) as defendants for the purposes of costs on the basis that the Lawyers were the real parties to the claim because the principal purpose of the claim was the recovery of the Lawyers’ unpaid fees. This “direct, personal financial interest” was said to go further “in a significant way” than the interest that any lawyer has in a successful outcome for their client under a CFA.

The Judge, noting the key question is “whether [it makes a difference that] the … damages claimed … included a substantial amount of money still owed to [the Lawyers] from the Langstone Action”, concluded that the Lawyers had not acted outside the role of legal representatives to such an extent as to bring themselves within the non-party costs jurisdiction.

In reaching the decision the Judge considered that the risk of a non-party costs order would, in many instances, force a party to instruct new lawyers, who may not understand the case as well as the former lawyers, and who would cost more to get up to speed. Such consideration may not apply to the other side leading to unfairness.

Further, there are many scenarios in which damages claimed in second proceedings include unpaid costs incurred in first proceedings. For policy reasons, including access to justice, lawyers should, generally, be protected from non-party costs applications in such cases.